This article was originally posted on the Tech North website.
Parting ways with your tech baby may seem like an unbearable loss, but it’s something you should keep one eye on from an early stage, according to an entrepreneur who has done just that.
While you may not have plans to put a price tag on your business just yet, it’s worth considering your long-term ambitions for the venture now so you have a clear idea of where you’re heading.
Serial entrepreneur Steve Purdham sold Cheshire software company SurfControl in 2007 for $400m to Websense, a Californian web security business. He later sold We7, a music streaming service, to Tesco for £10.8m, and Identum for an undisclosed amount to Trend Micro.
He took only three weeks out of business in between when he found that “wandering round B&Q was a nightmare”, and his entrepreneurial spirit took him straight back in with his next venture.
“Making a decision to sell your business is the hardest thing you can do,” he says. “People get so entrenched in the day-to-day operations that they don’t know why they’re doing it. If you ask why they’re running the business and the honest answer is that they want a lump sum in the future, then they should start considering the prospect of selling the business a lot earlier than they’d expect.”
The first question to ask yourself, and your fellow founders, is what does success look like to you?
Within a team of founders, you might find that one person wants to build a business worth £500,000, while you have ambitions to reach £10m, Purdham says. If you’re eyeing up a £1bn enterprise then the business is going to have to go in a certain direction to achieve that. It could even be that the business gives the founders a reason to get out of bed in the morning so they’re happy to continue, but these goals should be identified early on.
Then there’s identifying your potential buyers and doing the things within your business to show its value to the people you may sell to.
There are multiple reasons for buying and selling. In the case of We7, Purdham had taken it as far as he could. “We’d created an exciting proposition with significant value through the technology but it needed hundreds of thousands of dollars to access the music licences to take it to a global scale,” he says. “People buy for multiple reasons, it might be market share or geographical reach, the people, revenue or technology. They might have a sales and marketing channel that can sell technology 100 or 1,000-fold and that’s why Tesco bought We7.”
SurfControl was bought by a competitor for market share and reach, while, as a public company, the reasons for selling included getting the best deal for shareholders. Making that leap from being a £100m business to a £1bn one would have required acquisition, Purdham says, so any decision was based on extracting the best return for those with a stake.
Identum had “wonderful tech and quality IP” but didn’t have the financial resources to go to market, so a buyer was sought with the finances and the channel to market. “With both, it was a proactive decision on what was best for the company and shareholders,” he says.
Head versus heart
The sales process is always longer than you think and with that can come the battle of head and heart. “It’s massively emotional and for many people that’s the reason why deals don’t go through because they have this perception that they created this business called “my business” and when it gets bought it’s going to be something different,” he says. “They’re emotionally attached to the branding rather than taking a step back and saying this is achieving what I wanted to achieve.”
In this case, head should rule, Purdham says. “You have to try to keep the emotion out of it and say does this give me the ability to give my family what I want to give them. I think it people set out what they wanted from the start, these processes would be much easier.”
Consideration should also be made to ensuring employees feel settled, although this can be difficult, whether you’re upfront with them from the start of the process or share your news only when the deal is done. “I’ve tried both ways and they equally create tension because people are naturally worried about change,” he says.
Most of the time, the sale of one business overlaps with the founding of another and, although Purdham chose only a three-week break, he says the biggest thing about the sale of a business is that it offers you choices. His latest business, Stoke-based 3rings, is based around an Internet of Things device that plugs into appliances in an elderly person’s home and alerts family members when it senses no activity.
“The choice is do you retire or do you take another throw of the dice,” he says. “I found with Surf Control that it made me realise the things I enjoyed doing – taking something from nothing and building it, starting with an empty whiteboard and filling it in. With We7 we started with a white piece of paper and we ended up with three million people listening to music on a daily basis.”
“I’m happy previous businesses are flourishing”
Two of his enterprises have gone on to flourish after he sold them – and Manoj Ranaweera admits he could not be happier. The Manchester-based tech entrepreneur has been involved in setting up 11 businesses or projects in the last 13 years, two or which were sold to buyers who approached him. The Northern Tech Awards, which he established in 2011, was acquired by GP Bullhound two years later and edocr.com – described as a YouTube for documents – was sold for an undisclosed sum in 2015.
He keeps in touch with the chief executive of Accusoft, which bought edocr.com, to provide occasional guidance and has seen the awards go from strength to strength.
“I’ve been lucky in some respects,” he says. “Some of my competitors were acquired and then the businesses were shut down, but the Northern Tech Awards is significantly bigger than it was under my ownership and edocr.com, although it looks and feels different, is growing too. I don’t have a monetary interest anymore but I have an interest, as the previous owner, in seeing them succeed and in that respect I’m quite happy that they’re flourishing.”
It was December 2014 when Ranaweera, who founded Manchester’s first tech hub, was approached by a competitor interested in entering the marketplace and looking to acquire an established business to do so. Edocr.com had been running since 2007, aiming to allow customers to share documents via a social network, and counted Dell as one of its customers.
By March the following year, the deal had been done, but he admits it wasn’t an easy decision. “During that period of three months there were days where I thought we hadn’t really achieved what we set out to do, so should we sell or continue on the path we were on,” he says. “It took a while to figure it out and I sought advice from friends, but I decided the right decision was to go through with the sale.”
As he hadn’t been planning for a sale on either occasion, there was no work to be done on readying his businesses for buyers. He had been in the process of setting up another venture, UnifiedVU – a platform to integrate business software, and this was delayed while the sale went through. “Initially I was going to run both alongside each other, which was a difficult task, so I was looking at whether we could piggyback one on the other in the long term,” he says. “Selling edocr.com meant I could concentrate on my other business, although it wasn’t planned.”
Although he has never set up a business with a plan to exit in a certain amount of time, Ranaweera says founders should be prepared for approaches by interested parties. “The buyers will come if you set up something successful and if people can see some alignment in what they’re trying to do there will be approaches,” he says. “Both sales, for me, came at the right times, when I was getting tired and I wanted the freedom to do other things.”
His latest business is a revival of Techcelerate, which originally ran from 2006 to 2013 as a tech eco-system for entrepreneurs, investors and dealmakers. Set to launch during 2018, the new Techcelerate Ventures will be a deal broker helping companies grow through investment, access to markets and talent, and trade missions to San Francisco, Sri Lanka and China are already planned.
“Through these partnerships in other countries we can provide companies in Manchester with access to other markets and help them become ready for investment,” Ranaweera adds.
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